Final Rule: Overtime

Published on 6/13/2016
Written by: Stacia Getz

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation and impact all employers with gross revenue over $500,000 (including non-for-profit). The effective date of the final rule is December 1, 2016 and future automatic updates to the thresholds (broken down below) will occur every three years, beginning on January 1, 2020.

Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);

Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and

Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards.

The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule. You can view the entire article by clicking here and being redirected to the Department of Labor’s website.

What should you do?

If your exempt employees’ salaries fall below the new minimum, you will generally either have to; Raise their salaries to the new minimum salary level or Reclassify the affected employees as nonexempt and pay them overtime whenever they work more than 40 hours in a work week. If you raise employees’ salaries to meet the new requirement, your compensation costs will increase. If the potentially impacted employees seldom work more than 40 hours in a week and you do not want to increase your compensation costs, you could reclassify these employees as nonexempt and convert their salary to an hourly wage. These employees would be entitled to overtime if they work more than 40 hours in a workweek. You are able to enforce a policy to that prohibits employees from working overtime without approval. However, if the policy is broken the employee must be compensated for the overtime.

There may be additional clarifications and potential changes to these rules before the December 1, 2016 implementation. If you feel this change will impact your business and have further questions don’t hesitate to call. We would be happy to set up a consultation.